Environmental protection and performance: A bi-directional assessment

Highlights: • We investigate the bi-directional relationships between environmental protection expenditure and performance. • By utilizing annual data for 34 countries during 2005–2016 and employing panel approaches. • We find that the long-term relationships between environmental protection and environmental performance. • Incorporating the potential cross-section dependence and structure breaks. This research quantitatively investigates the bi-directional relationships between environmental protection expenditure and environmental performance by utilizing annual data for 34 countries during 2005–2017 and employing panel approaches like the cointegration test and VECM estimation. Our benchmark results support long-run bi-directional relationships between environmental protection expenditure and performance, but present no links between both variables in the short run. Pedroni's cointegration tests for sub-samples again confirm that both variables move together in the long run for all sample countries, but the panel VECM results support that while there are bi-directional relationships between variables among non-OECD countries, there are only unidirectional relationships from environmental performance to environmental expenditure in OECD countries. Our study offers important implications for policymakers that a better reallocation of environmental expenditure and long-term investment in environmental protection are critical for improving environmental performance.